Draft form 3800, General Business Credit, features major redesign to incorporate IRA changes

The IRS recently released a major redesign of Form 3800, General Business Credit, and its instructions. These drafts incorporate the extensive changes to the credit made by the Inflation Reduction Act of 2022 (IRA). The proposed form and instructions are available on the draft forms page of the IRS website.

Most of these changes relate to the  Code Sec. 6417 election to treat applicable credits as federal tax payments, and the Code Sec. 6418 election to transfer eligible credits to unrelated taxpayers.

Draft Form 3800 has three new parts

The 2022 version of Form 3800 had just three parts. Part I reported current year credits that are not allowed against tentative minimum tax; Part II reported the allowable credit for 2022; and Part III reported credit carryovers and allocated credits amounts based on non-passive vs. passive activities.

In a major expansion, the draft version of Form 3800 for 2023 has six parts:

1. Part I still reports current year credits not allowed against tentative minimum tax, with minor changes related to the elective pay and credit transfer elections. 
2. Part II still calculates the allowable credit for the tax year, with changes to reflect the lower tax liability limit for corporations and keep certain passive and non-passive credits separate.
3. Part III now reports the component credits for the current year, including information relevant to the elective pay and credit transfer elections.
4. New Part IV reports only credits that can be carried over.
5. New Part V reports information relevant to transferred eligible credits. 
6. New Part VI breaks down amounts reported in Part IV.

In addition, a new Item A at the top of the form asks the taxpayer to state whether it is an “applicable corporation” for purposes of the new corporate alternative minimum tax (CAMT) and the base erosion anti-abuse tax (BEAT).

Part III now includes elective pay and credit transfer election information

On draft Form 3800, Part III is completely restructured with new and re-designated columns, some of which report information about the elective pay and credit transfer elections. This Part III provides space for the following items:

• Column (a): the source form for the credit
• Column (b): the registration number for the credit property for which a direct pay or transfer election is made
• Column (c): the number of items if more than one facility or pass-through entity is the source of a credit 
• Column (d): the EIN of the entity that passed a credit through to the taxpayer, or of an applicable entity that transferred a credit to the taxpayer
• Column (e): credits from non-passive activities
• Column (f): credits from passive activities
• Column (g): the credit transfer election amount, reported as a positive number for the transferee and a negative amount for the transferor
• Column (h): the gross elective payment election amount
• Column (i): the net elective payment election amount 
• Column (j): the totals of columns (e), (f) and (g), less column (i)

Although Part III asks for substantially more information than earlier versions of Form 3800, some of these columns are required only if the taxpayer made an elective payment election, or transferred or received a credit. If the taxpayer made the election or transferred/received a credit with respect to more than one credit or credit facility, Part V breaks down the relevant information, including facility registrations numbers. 

Parts III and V of draft Form 3800 replace separate Parts III

Although Part III on draft Form 3800 asks for a lot more information, columns (e), (f) and (d) represent something of a simplification. On earlier versions of Form 3800, a taxpayer with a credit from both passive and non-passive activities had to report them on separate Parts III. Similarly, a taxpayer that received the same credit from more than one pass-through entity had to file a separate Part III for each entity. A taxpayer that filed multiple Parts III often had to file an additional Part III to consolidate the separate parts III. 

The draft form 3800 no longer requires separate and consolidated Parts III. Instead, taxpayers use new Part V to breakdown a Part III credit that aggregates figures from more than one tax year, from more than one pass-through entity, or from passive and non-passive activities. 

Parts IV and VI of Draft For 3800 reports credit carryovers

New Part IV of draft Form 3800 records accrued credit carryforwards and carrybacks before application of the current year credit. On earlier versions of the form, credit carryovers were shown in Part III. Like earlier versions, the draft Form 3800 also reports total carryforwards in Part I.

As with Part III, the information in Part IV is reported in several columns:

• Column (a): credits carried over to current year
• Column (b): non-passive credits
• Column (c): the earliest year from which the credit is carried forward
• Column (d): EIN of a pass-through entity that allocated the credit to the taxpayer
• Column (e): credit carrybacks to current year (used only with amended return)
• Column (f): carryforwards from all prior years, excluding eligible small business credits
• Column (g): carryforwards of eligible small business credits

Any amounts in Part IV that aggregate figures from more than one tax year or pass-through entity are broken down in new Part VI.

Draft Form 3800 and instruction include other changes

Finally, draft Form 3800 includes several other changes. First, the drafts identify source credit forms for three new credits: the small employer’s military spouse retirement plan credit (Form 8881), the nuclear power production credit (Form 7213), and the clean hydrogen production credit (Form 7210). 

Second, the form clarifies that a taxpayer that normally would not have to file a source form must do so for a credit that is transferred from an unrelated taxpayer. The draft instructions also explain how partnerships and S corporations report information relevant to the elective pay and transfer elections.

Third, the draft instructions summarize the rules for the elective pay and transfer elections, describing  applicable taxpayers and applicable credits for the elective pay election, eligible taxpayers and eligible credits for the transfer election, and the pre-registration requirements for both elections. 

More to come on elective pay and credit transfer elections?

The general business credit has never been simple, and the addition of the elective pay and credit transfer elections greatly added to its complexity. However, taxpayers might have some reason to hope that the new Form 3800 addresses all of these complications (other than the pre-registration requirements). The IRS has released extensive proposed regulations for the elections but has not yet said anything about special forms for them.